Wesdome suffers ups and downs but sees 2013 as brighter period

By Gregory Reynolds

Wesdome Gold Mines Ltd. looks back at 2012 as both a good and a bad year.

The company owns the Eagle River and Mishi gold mining operations near Wawa, Ontario and the Kiena mining complex in Val d’Or, Quebec. The Eagle River mine commenced commercial production on Jan. 1, 1996, the Kiena mine on Aug. 1, 2006 and the Mishi Mine on Jan. 1, 2012.

Company CEO Donovan Pollitt said “2012 was a year of contrasting successes and challenges. Our new Mishi Mine came on stream on time and budget, yet we faced milling availability constraints. Grades and production from Eagle River increased, yet operations at Kiena showed declines in grade.

Restructuring the operations at Kiena showed tangible cost savings, yet margins continued to contract. We have made some tough decisions to move forward in a focused stepwise fashion which preserves the company’s financial position while investing for increased profitability and production growth.”

On March 7, 2013, the company opted to suspend mining at Kiena by June 30, 2013.

At Dec. 31, 2012, the company had $13.9 million in working capital, which includes 8,965 ounces of gold bullion in inventory. In 2012, revenue exceeded mining and processing costs by $15.8 million, $11.2 million in capital costs were incurred and $4.1 million of debt was retired.

“Cash flow from operations totalled $12.1 million and the net loss was $45.3 million. The net loss is entirely attributable to non-cash impairment charges - a $60.9 million write-down to the carrying value of the Kiena Mine Complex - and another non-cash write-down of $1 million for an exploration property option which was allowed to lapse in Q2 of 2012.

Without these one-time events, pre-tax earnings would be $2.1 million,” Pollitt said.

Eagle River production was 32,223 ounces, Mishi 4,776 ounces and Kiena 18,814 ounces. Currently forecast production for 2013 is 55,000 ounces.

Despite some setbacks, the company expressed confidence in the future: “In summary, 2012 demonstrated a good bounce back from a challenging 2011 and provided us the confidence that this production growth can continue.”

Pollitt said “we continue to expect the Eagle River Mine to produce about 41,000 ounces and the Mishi Mine about 9,000 ounces. We believe Kiena will contribute about 5,000 ounces by the time mining activities are suspended in June.”

In 2012, production increased 17% to 55,813 ounces of gold and gold sales increased 7% to 55,500 ounces compared to 2011. Mining and processing costs increased 17% to average $1,385 per ounce for the year on a production basis.

In 2012, bullion sales exceeded mining and processing costs resulting in a mine operating profit, or gross margin, of $15.8 million. In addition to these direct operating costs, additional cash costs, including royalty payments, corporate and general costs and interest payments amounted to $4.8 million.

At the Eagle River Mine, grades steadily improved as the company worked its way through a heavily diluted sequence of stopes and development ore. In 2012, recovered grades were 35% higher than in 2011 and forward development in the 811 Zone reflects the start of a higher grade mining sequence expected to last through 2015.

“At the new Mishi Mine, we mined 102,216 tonnes of ore and 1,213,664 tonnes of waste for a stripping ratio of 11.9:1. With the incorporation of a 200 metre long east pit extension into the mine plan, the current life-of-mine stripping ratio decreases to 2.7:1.

In 2012, mill availability was less than expected. Over the year we averaged 625 tonnes per day and we were planning for 900 tonnes per day. Considerable efforts have been made to debottleneck processes, update equipment and human resources and improve reliability and throughput. This work is ongoing and represents our easiest route to increasing production growth over the short term.

Mishi reserves and resources justify a longer term view. We have commenced studies to select a new tailings management facility, with a view towards increasing our milling capacity.

We have substantially worked our way through the high strip early stages of the Mishi Mine, stockpiled over 37,000 tonnes of ore at the mill and increased our reserve life to 10 years at current rates. The fact that the first year’s production returned better grades than estimated gives us great optimism in the potential of this asset to drive a longer term vision and support key infrastructure investments.

At the Kiena Mine, salvage mining of developed reserve blocks will continue until the mine closes, after which the infrastructure will be placed on care and maintenance status.

The decision to close Kiena was made in context of optimizing returns of capital allocated amongst all our operating mines and projects. Management does not favour equity financing options under current fragile market conditions to fund further exploration and development work at this point at Kiena,” said Pollitt.